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DBS Group Holdings Ltd Is 1 Blue Chip Stock That Has Been Buying Back Its Own Shares

Every now and then, I like to keep track of companies which have been buying back their own shares. That’s because share buybacks may be a sign that a company’s stock is undervalued.

Peter Lynch, the legendary manager of the U.S.-based Fidelity Magellan Fund, also included buybacks as one of the criteria in his investing checklist. To Lynch, it’s a good sign if a company or its insiders are buying shares.

Of course, management may be tasking the company to buy back shares for other reasons other than its stock being undervalued (some other reasons would be to offset dilution). And even if management feels that the stock’s undervalued, they may well be wrong in their assessment too. But, companies that have been buying back their own shares are still worth digging further into.

With these in mind, let’s take a look at one company I’ve chosen at random from a list of companies that have been engaged in buybacks these past few weeks.

The company in question is DBS Group Holdings Ltd  (SGX: D05). It is a blue chip stock, given its status as one of the 30 constituents of Singapore’s market barometer, the Straits Times Index (SGX: ^STI). As a quick background, DBS is Singapore’s largest bank by assets and it has over 280 branches across 18 markets in Asia.

From 1 September 2016 to 14 September 2016, DBS has bought back shares of itself on six occasions, spending a total of nearly S$23.5 million on 1.5497 million shares.

In the bank’s latest earnings report (for the second-quarter of 2016), DBS saw quarterly total income growth of 8% year-on-year. The bank turned in S$2.92 billion in total income. But, partly due to a S$150 million net allowance charge for exposures related to embattled oil & gas company Swiber Holdings Limited (SGX: BGK), DBS’s net profit during the period actually fell by 6% toS$1.05 billion.

Despite the Swiber kerfuffle, DBS’s management team is not too concerned when it comes to the overall health of the bank’s business. DBS’s chief executive Piyush Gupta said:

“Despite an unexpected significant allowance charge, first-half earnings were at a record. The performance demonstrates our ability to consistently capture opportunities across our businesses and effectively manage costs. While there remains some uncertainty in the second half, our business momentum is good and our balance sheet healthy. We are well prepared to meet the challenges ahead.”

DBS’s shares closed today’s trading session at a price of S$14.97.  At that price, the company is valued at just 0.92 times book value. Investors may be interested to know the valuation ratio is actually near a five-year low.

A Foolish conclusion

Companies that are engaged in share buybacks are just a good starting point for investors looking for opportunities. It’s up to the individual investor to dig further and determine for him or herself whether a company’s shares are actually cheap or not.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.